Divorce formula sought for clean break on pension

SHARPSHOOTING peers have caused chaos to the Government's proposed Pensions Bill as it wends its way through the House of Lords.

Their amendment last week, whereby more than 45,000 war widows who have been bereaved or divorced from their second husbands can still receive a war-related pension, could cost the Government up to £40m a year.

To appease their Lordships, ministers have indicated their willingness to amend the Bill further, insofar as splitting pensions on divorce is concerned.

The new proposals would allow courts the power to force husbands give their ex-wives a portion of the income from their work pensions at retirement, when apportioning assets on divorce. But Geoffrey Wilson, an actuary and partner at Binder Hamlyn, chartered accountants, said: "The problem with this amendment is that it does not allow a clean-break settlement.

"The ex-wife is reliant on her former husband for the rest of her life. What is more, if he dies, so, too, does her chance of a pension. Should a court tell a pension scheme to pay £1,000 a year to Mrs X, if Mr X died there would be no obligation on the scheme trustees to pay this money at a later stage."

Binder Hamlyn was recently asked by Fairshares, a group campaigning for divorced women, to produce a report on how pension-splitting might be achieved in practice. The report proposes a separate woman's pension could be set up on divorce, into which half the husband's pension value accrued during the marriage could be paid at divorce.

Former wives would be entitled to ask pension trustees directly for a transfer value, giving them immediate control of their own assets. Public sector schemes which do not have actual pots of money could be `notional', allowing the Government to keep records of their value and adding interest at the average annual rate earned by real pensions.

A pension would be set up at retirement, with the husband's entitlement being reduced accordingly.

Binder Hamlyn proposes that pension splitting should only take place where a marriage has lasted more than five years and the wife's share of the pension value exceeds £10,000. Benefits could be taken at age 50 or after, with no tax-free lump-sum option, since pension splitting is intended to provide retirement income.

Mr Wilson said: "The proposals would require amendments to present pensions law and Inland Revenue practice. It may be complicated, but it is no more complicated than the current amendments being drafted to the Pensions Bill. Except that, in this case, women would receive immediate rather than deferred justice."